ALJ Regional Holdings: A Buy, Following Excellent Results

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ALJ Regional Holdings (OTCPK:ALJJ) recently announced its earnings performance for the first quarter ended December 31, 2015, and the results suggest that its stock may continue to be a bargain.

Building A Diverse Group of Businesses

ALJ Regional Holdings provides outsourcing and other services to government and commercial entities in the utility, healthcare, transportation and toll industries. The company is comprised of three completely different segments created through acquisitions: Faneuil, Carpets, and Phoenix. ALJJ Acquired Faneuil in October 2013, Carpets in April, 2014, and Phoenix in August 2015.

However, ALJ Holdings started in the steel industry. In 2003, ALJJ invested $125,000 for a 1.00 percent membership interest in KES Holdings LLC, which was created to purchase assets of Kentucky Electric Steel, comprised of a steel mini-mill. KES had existed for close to 40 years, but had fallen into bankruptcy in 2003 after shutting down the mill. KES acquired the mills assets and renovated the site, restarting operations in 2004. The mill operated profitably, and ALJ increased its stake in KES to 80 percent and eventually sold it in 2013 for $112.5 million for a profit of $87.5 million.

In order to acquire Phoenix, ALJ Holdings had to finance the deal, which put $125 million in debt onto the balance sheet versus $3 million in cash.

Despite this, the company’s management may be able to turn each of its three businesses into profitable endeavors such as it did with KES.

Another factor that may interest investors is the stake that billionaire investor Ronald Perelman has in ALJ Holdings. ALJJ acquired Faneuil from Harland Clark, a wholly owned subsidiary of MacAndrews & Forbes Holdings Inc, which is wholly owned by Mr. Perelman. In the sale of Faneuil, Mr. Perelman acquired 3 million shares of ALJ Regional Holdings representing 10 percent of the company.